“Don’t Kill the Kitten that Cures Cancer!”

With a few probably exceptions, musicians aren’t making obscene amounts of money from streaming services or people who pay for subscriptions to them.

But is there a better way? Might it be possible to let individual listeners decide how much of their monthly fees are going to bands they like, instead of a communal pot o’ cash?

Sharky Laguana, founder and CEO of the band van rental company Bandango and previously the founder of 90’s indie band Creeper Lagoon, has taken a deep dive into the world of streaming services, royalty division and how ‘bots can ruin everything by click fraud.

SharkyLaguana

Sharky Laguana

Under the current system, each subscriber pays their monthly fee, which is divvied up among artists on a streaming service like Spotify (minus the site’s 30% administrative fee) based on how many streams occur each month. Using two other panelists during the Future of Music Coalition’s Music Policy Conference, in Washington, D.C., last month, to represent the bands Alt-J and Nickelback, Laguana demonstrated that, if more listeners are clicking on Alt-J streams, that band would get 80% of the $70 USD available from the royalty pot, or $56 for that month, while Nickelback, which received 800 clicks to Alt-J’s 3,200, would receive $14. “That seems totally reasonable,” Laguana said. “The band with the most fans got the most money.

A single user who gets “a little too obsessive” about a particular song—Nickelback’s “Photograph,” in this case—might rack up a higher than average amount of clicks for a given band, thereby altering the math. In that scenario, Nickelback, the recipient of 12,200 streams for one song in addition to the 800 clicks from the previous example, now gets a bigger share of the royalty money, which also means that some Alt-J fans are giving their money to Nickelback, a band they might not even like. “The message to artists here is simple: Don’t get fans, get clicks,” he said. “You don’t want fans. You want people clicking.”

All that changes when ‘bots enter the picture and begin committing click fraud, in which a program or dedicated user just keeps clicking on a given artist or song over and over, generating traffic without actually caring about what’s playing. A writer from Vice recently published an article demonstrating this exact scenario, tallying up more than $32 USD per day in royalties without hearing a note.click-fraud-data-q3-2010

Streaming services are adamant they can spot click fraud and solve that problem, but it’s something that the bigger companies in the online realm, including Google, Apple, Twitter and Facebook, “with a combined market cap of $1.5 trillion” haven’t been able to solve, he said. “Google has some of the smartest people in the world, and they can’t solve the problem. The problem is insolvable. You can’t know what someone’s intention was when they clicked.”

Doing his best impression of Dr. Evil from the Austin Powers movies, Laguana asked the audience of about 200 people to envision Dr. Evil taking that Nickelback superfan, offering to pay him $10 on top of his $10 monthly subscription fee to click exclusively on a file Dr. Evil has added to Spotify at a rate of once every 31 seconds, for a monthly rate of 87,412 clicks. “Alt-J now has  3,200 clicks, which is now 3.2% of clicks, worth $2.56. Nickelback has 400 total,” worth roughly $.32 for the month. “In this scenario, nine out of 10 subscribers are paying 100% of their money to Dr. Evil. One hundred percent,” Laguana said. “So, that’s bad. But it’s actually bad for the whole f#!ing industry. Pro-rata plugs clicks, not subscription growth. We’re rewarding the wrong f#!ing thing. Each of these users are worth $.32 each. They pay $10 but to their artists, they’re only worth $.32. Meanwhile, the really valuable user over here isn’t listening to music at all. That might seem okay if heavy users actually paid more money, or if there was a large body of heavy users out there that we could convince to subscribe (to a streaming service). But most serious music fans already subscribe to a streaming service.”

A better method would be something called subscribershare, or a user-centric model, in which a subscriber could designate all of their royalties to a single artist, or divide it up amongst bands he or she actually enjoys. Going back to his Dr. Evil scenario, the Alt-J fans would give all of their $56 to Alt-J, Nickelback would receive the $7, and “Dr. Evil, who paid $20 to get 83,612 clicks, now has a $13 loss.”

We, as music fans, vote for culture with money, but the current pro-rata system takes fan valuation out of the equation and makes them almost worthless to bands. Switching to a user-centric model makes fans incredibly important to bands.

“It’s not exclusively about fans, but you need fans and you need them to click,” Laguana said. “Perhaps most importantly, all fans are equal.”

There are also problems with breaking down royalties based on the “average user,” because that doesn’t paint a clear picture of what that listener enjoys, or factor in environments like gyms, hair salons or college dorms, in which many people are sharing access to a single subscription account. Critics of the user-centric model will suggest that it gives more money to artists that are more popular while smaller or less widely-known acts struggle to receive even a tiny bit of money, which Laguana admitted is true. He pointed to some research done by Arnt Maasø at the University of Oslo examining two months’ of streaming data which found that a transition to the user-centric model allowed those smaller, independent acts to benefit more, giving more money to the bands that need it most. The impact to major record labels, however, was minimal.

So if that’s the case, why does it matter which type of revenue scheme is used for dividing up royalty payments to artists?

“Imagine you have two kittens and you’re a scientist. And you have two poison gases,” Laguana said, drawing mixed responses from the crowd. “You need to learn what the fatality rate is on these poison gases. You put two kittens in a box and you pump in gas #1. One of the kittens dies. Ok, 50% fatality rate. So you put another box of two kittens and you pump in gas #2, and one of the kittens dies. Great, 50% fatality rate. Who cares? Same difference either way.

“What if I told you one of these kittens had a gene, and that gene would cure small cell carcinomas in 60% of people with lung cancer. Now you care which kitten lives. You give a shit. Now you want to know which gas kills the kitten that cures cancer. In music, the kitten that cures cancer is the artist with fans. Don’t kill the kitten that cures cancer!”

Also, remember that people don’t listen to single band or style of music for the entirety of their lives. “Really, everybody, when they listen to music, they’re on a journey. This journey follows, statistically, very predictable trends,” from listening to lots of pop music as teenagers, then more exploratory listening in college, returning to pop during the “midlife crisis” phase, and eventually returning to the music that resonated most deeply during critical moments in young adulthood.

Another panelist, Melvin Gibbs, a bassist and president of the Content Creators Coaltion, a union for musicians, said that the current system doesn’t fairly represent more casual music listeners. “I think there’s more than one way to think about how this actually plays out this in real world,” Gibbs said. “You have somebody that actually decided they want to pay for music. Yeah, they’re consuming it on a very small basis, but they decided to pay for it. That’s the important part—they decided to pay for something in particular. As a consumer, I think that should be respected.”

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Melvin Gibbs

Simon Wheeler, director of digital and new business for the Beggars Group in the UK, argued that while the research out of Oslo is interesting, it’s a small sample set. He admitted to “struggling” with how a single superuser, or a group of superusers, can influence the revenue pot when there are millions, or hundreds of millions, of users on streaming services. The Oslo study “was done on a very small service in a very small market and it was done over two years ago, in August 2013,” he said. “The world is a very, very different place now than it was two years ago. On the plus side, we can create a scenario where customers who are paying money for music feel the money they’re paying is going to the artist they listen to. That’s got to be a good thing. If that’s all that comes out of this (discussion), let alone a little change in the market share…I think it’ll be worth doing.”

Laguana added: “I have asked and I have begged, I have submitted proposals to the streaming services. I said I will gather all the researchers who have looked at this data” and has offered to analyze services and royalty division to figure out the best approach, while signing a non-disclosure agreement, for free or $1 per year. “It’s like the last episode of Lost—I just want to know,” he said. “Whether it’s good or it’s bad, and it’s probably bad, I just want to know.”

A listener’s connection to music is crucial, and the more that listener is separated from the artist she listens to and the economic decisions she makes, “the more we kind of lose our way… Think about every genre that ever existed. Jazz, blues, country, hip hop, reggae, rock, punk rock, indie rock, grunge rock: It all started with a group of small musicians who were having a collective experience, and the music was their way of expressing their experience.” Listeners who found their music and felt it resonated with their own experience of life at the time wanted to support those artists and, in the past, did so by buying albums.

“I want to support my experience. I want to hear more of this, whether I’m selling crack in Compton or I’m depressed in Seattle because it’s raining all the f*#!ing time. All that collective reinforcement, that’s how (the music industry) grows. And who’s the beneficiary of that? The record labels! Hopefully also the artist. Right now we’ve sort of modeled it up. At this point, right now, it takes a band 8.5 million streams to earn minimum wage.”

The transition from ownership to streaming has been fast, but fans appreciate the value of a streaming service, paying $10 a month for all the music they’d ever care or try to listen to, Wheeler said. But those who say artists aren’t getting paid for streaming are wrong: Within his company, 32% of revenue came from physical album sales; downloads accounted for another 30% while continuing a rather steep decline in the past few years; but streaming constitutes about 40% of the revenue for artists signed with the Beggars Group.

SimonWheeler

Simon Wheeler

“Some of our artists, looking at recent royalty statements that just went out, many of our artists are getting 40%, 50% of their royalties from streaming. It’s a real revenue stream, it’s getting to our artists.”

 

It’s also important to make sure that artists have a say in how their work is distributed, Gibbs added. “I’m a strong believer that artists and the labels that support them should facilitate artists getting music out to the people the way the artist thinks is best,” he said, adding that he really needs a core of fans that believe in the music he makes. “Some artists want to sell their music direct to fans first, and then go to streaming services, and that should be facilitated. Artists that want all releases to go to the streaming services, fine, that’s good for them first. That should be their choice.”

For more from the Future of Music Coalition conference, read here and here.

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